A common thought among busy business owners is that they will form a limited liability company later when there business gets to a certain size. By running your business as a sole proprietor without the use of an LLC, you are actually creating a ticking time bomb for liability.
You see, lawsuits are almost always about money. The more successful your business gets, the more likely you will be targeted. Litigation lawyers love sole proprietors because they have so much more at risk when a lawsuit is filed. This means the lawyer has more leverage to extract more money from you to arrive at a good settlement.
So, my first point is that an LLC only protects business activity after forming a limited liability company. Any activity performed before then can come back to haunt you- even years later.
My second point is very important- if you are presently being sued or in the midst of a dispute which could lead to you being liable, you cannot now form an LLC for purposes of protecting your assets. If you do this and transfer your assets to the newly formed LLC, you could be liable for a civil offense called Fraudulent Conveyance.
This will lead to you owing significantly more money in fees and penalties and, in some egregious and intentional cases, fraud can be criminal which could lead to imprisonment.
BOTTOM LINE. Be smart and form a limited liability company at the beginning to conduct all of your business activity as this will be protect you and your assets for future years to come.
